What Is a Mechanic's Lien?
A mechanic’s lien is a guarantee of payment to builders, contractors, and construction firms that build or repair structures. Mechanic's liens also extend to suppliers of materials and subcontractors and cover building repairs as well. The lien ensures that the workmen are paid before anyone else in the event of a liquidation.
- A mechanic's lien guarantees payment to builders, contractors, or construction firms that build or repair structures and other stakeholders involved in a construction project in the event of a liquidation.
- Mechanic's liens are often necessary to secure construction help on a project.
- From an investment standpoint, it is important to note that mechanic's liens generally have a higher priority than other forms of debt.
- A mechanic's lien was first developed by Thomas Jefferson to create a landed gentry in the United States.
Understanding a Mechanic's Lien
Mechanic's liens are often necessary to secure construction help on a project. The lien stays in force until the project is finished and all construction personnel have been paid.
From an investment standpoint, it is important to note that mechanic's liens generally have a higher priority than other forms of debt. This priority determines the hierarchy of claims in the event of foreclosure or repossession.
The conceptual origin of a mechanic's lien goes back to the early days of the United States. The lien was first developed by Thomas Jefferson to create a landed gentry in the new nation. The U.S. had vast stretches of productive land and a mechanic's lien helped citizens monetize the land and build farms. The lien is called a mechanics lien because construction workers were referred to as mechanics (or people who work with their hands) in those days.
Mechanic's Lien Enforcement
A mechanic’s lien can be used to address both unpaid labor and material costs related to a construction project.
Each state has its own laws governing the specific types of costs that may be included when filing a mechanic’s liens. In addition, it's worth bearing in mind that there may be time constraints and statutes of limitations for filing a mechanic’s lien based on when the work was performed or when construction was completed.
A mechanic's lien is also known as an artisan's lien or a materialmen's lien.
The owner of a property may feel compelled to resolve a mechanic’s lien as soon as possible because a property typically cannot be sold while a lien is in effect. Any potential buyer of the property would see there is a lien in place when they perform a title search. Any new owner would be held responsible for addressing liens attached to the property.
A mechanic's lien must be distinguished from machinery liens or possessory liens. The former gives the owner the right to file a claim against a property or piece of real estate. The owner must follow due court process and cannot evict property holders from their land. Machinery liens give the owner the right to possess a piece of machinery, such as an automobile, for unpaid dues.
Example of a Mechanic's Lien
A contractor might file a mechanic’s lien if a property owner reneges on paying a portion of the amount due for the work performed. A subcontractor could likewise file a mechanic’s lien if a primary contractor fails to make proper payment for their work and materials.
For example, a contractor may hire a subcontractor to deliver and pour concrete to finish a portion of a construction project. The subcontractor has an agreement with the contractor but not the property owner. The subcontractor can file a mechanic’s lien if the contractor fails to pay for the concrete they provided for the project. The lien would be against the property, which would force the owner to get involved.
A separate breach of contract lawsuit could be filed directly against the delinquent contractor. This tactic would engage the property owner to also apply pressure to the contractor who has not paid the subcontractor.